The Secretary of State for Business, Energy and Industrial Strategy v Rosenblatt

Under section 6 of the Company Directors Disqualification Act 1986, the court applies the ordinary civil standard of proof. Serious allegations do not create a heightened standard. A director may be found unfit where the company knowingly participates, or wilfully shuts its eyes to participation, in transactions connected with fraudulent VAT evasion.

The court assesses knowledge from the totality of the transactions, the company’s conduct, omissions, surrounding circumstances and any reasonable alternative explanation. Wilful blindness may amount to knowledge. Knowing and significant involvement in VAT fraud ordinarily warrants a top-bracket period of disqualification.

The Secretary of State brought a director disqualification claim against Andrew Scott Rosenblatt under section 6 of the Company Directors Disqualification Act 1986. The claim concerned Brand Management Services Ltd, a wholesale alcohol business which entered into 43 transactions connected with missing-trader VAT fraud.

The defendant accepted that he had acted as a director and that the company had become insolvent. The issues were whether he knew, or should have known, of the connection with VAT fraud and whether his conduct demonstrated unfitness. The court also had to determine the appropriate period of disqualification.

1. The claim succeeded. The defendant was a director of BMS, BMS was insolvent, and the statutory unfitness threshold was satisfied.

2. The court applied the single civil standard of proof. The seriousness of the allegations affected the assessment of inherent probabilities and the evidence, but did not create a heightened standard.

3. Following Kittel v Belgium [2008] STC 1537, Secretary of State v Warry [2014] EWHC 1381 (Ch), and Mobilx v Revenue & Customs Commissioners [2010] EWCA Civ 517, a company is properly treated as knowingly involved where it knew, or should have known, that the only reasonable explanation for the transactions was a connection with VAT fraud. The court may consider the totality of the transactions, what the company did or omitted to do, what it could have done, and the surrounding circumstances. Wilful blindness is sufficient.

4. The defendant knew, or wilfully shut his eyes to the fact, that all 43 transactions were connected with fraudulent VAT evasion. The principal evidence was the sham appearance that his brother controlled BMS, the inadequate and cosmetic due diligence, and a specimen transaction showing that BMS’s participation had been pre-ordained before the supposed onward purchase.

5. The court made no finding that BMS’s other transactions were connected with VAT fraud. Their unestablished legitimacy was nevertheless a relevant circumstance when assessing the defendant’s knowledge of the 43 transactions.

6. The conduct was sufficiently serious to warrant disqualification. Applying Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164 and the guidance in Secretary of State v Warry [2014] EWHC 1381 (Ch), knowing and significant involvement, including wilful blindness, falls within the top bracket. A period of 13 years was imposed. The defendant’s decision to contest the claim was not itself penalised, but his continuing failure to recognise his involvement was relevant to the future risk he posed.